Exports and kinesia run. Aggregates supply. Remember, there's two types of aggregate supply curve. This sort of keysian one on there. Yep, very nice because you rule out this one, this one because this is the classic aggregate supply and it was increased, wasn't it? So it's obviously shift out very good. Using the classical long run aggrethrosupply curve, explain what will happen in the long run to real output if aggregate demand increases. So it wants you to draw the diagram with the classic long run aggregate supply. You've got clues up here. Real output if aggregate demand increases. So draw it, draw the shift if I gets momincreasokay. Sure, a shaft, okay. So I have a question. Tell me class. Oh Yeah. Okay, no question. Now, classical long wrong. I will get a supply. Yeah. If you're struggling in Cal, there's the two. This is the Keynesian one, remember, and this is the classical one. Yeso you've got cluyou can scroll up and down and use the other thing. I know you won't be able to in the exam. We're learning it at the moment. Well, you know, revision. So. Nice. You're very neat on your diagrams. Very good. Good. Now the question is. What happened in the long run to real, real output if aggregate demand increases? So tell me what happens in the lot? This is real output. Even if aggregate demand increases, what happens if aggregate demand increases? The price level will increase. But the amount of real output. Doesn't change. Exactly right. Bang on. Yep, happy. Yep. You understand why? No. Well, in the long run, we are long run. Aggregate supply tells us how much a country can make long term working at full capacity. So what it's saying is, even if demand increases for something, the country can't make any more stuff. They're at full capacity. They're making as much as they can. So all that happens is the price goes up because they can't make more. Whereas in the short term, they could possibly change resources and move resources about, but in the long run, they can't. At full capacity, they can't. They can't make more just because people want more. It's like we can't suddenly make in the uk, there are thousands and thousands of fields. If the demand increased for. Strawberries we can't you know, there's and we're make we've got strawberries in every field. There's nothing else we can do. You know, we're at full capacity. We can't make more. It would just put the price up to stop people buying as many strawberries. Okay? So in the long run, the supply is fixed. The classical sort of theory is that long runaggrevate supply is fixed, it can't change regardless of what happens to demand. Does that make sense or not really? Okay, Yeah. Yeah you don't understand. Do you understand the diagram? Do you understand what you've drawn? Yeah. So you understand the diagram and you understand that, right? Okay, we have a factory. I'm going to ruin your lovely diagram house. We have a factory. Okay, here's our factory. Let's just pretend this is a country, but this is our this is our factory because it's easier to understand it can make with the resources it has. Let's make it really simple numbers. It can make five things a day, okay? Whatever those things are, it doesn't matter. It can make five a day, okay? That's it. Working at full capacity in the long run. We've got all the technology we can have. We've got all the staff. We're fully utilizing all our resources and all we can make is five a day, doesn't matter what the number is. Okay? But just for this example, now what we're saying is every day we are able to make five. So on Monday we can make five. On Tuesday we can make five. Okay. This is us running at both custy every day. We are we are at this point that you've drawn on here on the aggregate supply, long run aggregate supply, we are here. Yep, we are at the long run aggregate supply. Okay, this is our output, okay? Which is like I said, five a day. All right? Now, if all of a sudden whatever we're making becomes really, really popular and the aggregate demand shifts so it increases from there to there, we can't make any. We just can't as much as we would like to, we can't make any more because we are operating at the most we can make. So all that happens is it can't an increase in demand doesn't change our output in the long run. It can't because we are doing everything we can. The only thing it changes, which is what you drew, was it increases the price of it because it because more people want it. And if becomes company, more scarce. Does that make sense? We cannot make more even if we want to. So so the output never changes. The only thing that changes is the price. Understand that. So we assume that the factors of production is the same. So yes, these are the these are the maximum amount we can product we can produce. Okay? And the long run aggregate supply assumes that we are operating at full capacity. Yeah and that's what the market does. It makes all our resources, all our factors of production are being used. That's what the long run aggregate supply curve shows. So you're exactly right. So that's why it doesn't matter what the price is, we just can't make more. Is that okay? Okay. We are waiting at full capacity. Okay. Explain the likely impact on aggregate demand in a fall in average housing prices. Average house process Yeah. Average house. And that is advodemand Yeah the impact on aggregate demand, remember, we told average house prices is full. The consumption will increase because. The consumption will increase because because there's more demand. No, no, no, no, no. There will be more consumption, then aggregate demand will increase and the curve will shito the right. Okay. Okay autogon the other way. Okay. But you can you've argued it. You've argued it. It's fine out of gone. Falling average house prices makes. But you've argued it the other way. It's fine. Good. Okay. Okay a number of business groups from and screws less confidence. As such they will consume less, avoid average house price. Remember if will have more confidence maybe they have more confidence no because remember the people if house is full, this is what's happening in the uk at the moment. The houses are a bit, they're not going up anymore and they're taking a long time to sell. And houses in London are quite difficult to sell, and the housing market often follows London. And what happens is because you've bought a house and your house prices start to go down, you feel, Oh my goodness, you know, I don't feel as rich anymore. And therefore, you don't sort of borrow as much money or don't spend as much because houses are coming down in price. Now from your you argued it. And you're right that actually what that could do is to think people think, Oh, now's the time to buy a house like someone like yourself maybe that doesn't have a house in the uk. This might give you more confidence and more spending etcec the other thing where house prices start to fall is people do less building on their houses, so they do less extensions because their houses aren't worth as much. So Yeah. Because a lot of people's wealth, what you've got to remember is a lot of people's wealth is in property, especially in the uk. I don't know if it's the same in China, but say you looked at the average person, let's just say here's a person. Yeah if you think how much money they've got in their bank account, in their bank. They tend to have a small amount. Their car is probably worth, I don't know, let's say, 10000 pounds, but the house is worth, you know, an average person is probably worth about 500000. So this is where a lot of people's money sits in their property. And if the price of this starts to fall. They feel a lot less wealthy. Do you see what I mean? That's that's why. Is it? Tell me, go on, tell me, how's it different? Maybe it's opposite in China, maybe okay. I think maybe in China the price of house falls. Maybe people willing to buy. Because because China because Chinese house price maybe in Nanjing is very expensive. Yeah, so if therefore maybe zero power. Yeah and maybe sort of people in China have more money in savings or bank accounts as well as property, whereas in the uk, most people, their money is in their property, in their house. So if that falls, sometimes they don't feel very confident. They feel like they've lost money. They haven't actually lost money. They just their house just isn't worth as much. Okay, okay. A number of business groups have signed an open letter to the uk government asking it to commit delivering a full old, this was a rail link, this a new rail line, this will connect London to the northern cities of Manchester and Leeds at a cost of 56 billion and reduced early Talby as much as 50%. Explain one likely the impact of this project on aggregate supply in the uk. Oh, work. Can I just say to you, by the way, while we're doing this, this is a formmark question. Okay, okay. So you need. It's two Marks normally for using the information. Can I just say your easiest way to use the information is to use the numbers and your answers. So if I was doing this question. After setting that in. And that they your easiest things or possibly London. I would use your numbers okay always when you if you have a question like this where you have to put like you have to show you've used the answers to the Yeah make sure you use the numbers. You get one or two Marks normally depending on the mark scheme. So I would always try and put two bits in just in case. It's two Marks. Okay, that would be my advice to you. Sometimes you get one mark for them, but using the application sometimes it's two. So I would always try and put two bits of information in just in case. So anyway, back to the question. Sorry, I distracted. Explain one likely impact product on aggregate supply. Supply, how would it make the country more productive? That's what you need to think. Think of the workers, think of the businesses having a fast train from the north of England to London, how from Manchester to London. How would that make everybody more productive? The uk government asking to commit, delivering the full high speed to to ralink and connect London to the north city of Manchester and Leeds. So aggregate supply. Maybe. What lovely impact. Maybe more experience may increase the aggregate supply. Yeah or think about things like. So. Oh, get sorry, get to work quicker. People can get to work quicker, faster, less time on the train, so therefore the workers are more productive. It could be more efficient. More efficient for firms that work all over the uk. Drop me to write an example so you can see how I would write something like this. Yeah Yeah. P, okay, okay. So what is it one impact of the project on aggregate supply? Okay. Okay, something like that. Not the world's best, but it's. Sometimes. And then you could draw yourself a little. Sorry, I'm not freacould have drawing these time. Kind like that. Now if you were marking this, you would know they had used the this. Can you see that I've just thrown these numbers in. So good things are this. You can see I've got the Marks for using it. Okay, you number Yeah you can see I've got the knowledge because I'm saying it would have increased efficiency for workers and firms. And I've also got a knowledge mark because I've drawn the diagram yet. So we obviously know what I'm talking about. And then this is my so this is my linking. It will allow them more time for workers to be at the office. They can produce more. Okay, that's my analysis. So my yellow is my knowledge. Okay, my Green is my application. I'm using the case study. Really obviously the easiest way to do that is with numbers. And then my pink is, well, what happens? You know my analysis, this leads to you know. It's only four Marks, so it's not very long, but that's the kind of thing yoube wanting to do on a four mark question. And the the nice thing about the four mark questions is they're very easy to get. Not very easy, but you can easily, easily, you can very achievably get four Marks. Whereas on like a, you know, a 50 mark essay question, it's nearly impossible to get 15. Now, 15, do you see what I mean? It's much harder to get the full Marks on the big questions, the little questions. It's much easier to get the full Marks. Does that help with how you should answer those sort of questions? Yeah, is that okay? Yeah, okay. Right? Okay. Similar. Similar question. So your clue is the diagram I've drawn there. This one, all it's asking for is the diagram. It's not asking for you to write anything. So you just need to make sure you do the diagram properly. Are you happy to have a go drawing that? Aggregate supply and aggregate demand remains this new bridge on the Press level and real output in the region. Yeah, I know how to draw it. New bridge will take more customers. And more efficiency. Like very good. Just watch your because that would be one and that would be where you're doing it. It's shifted out to the right, hasn't it? So it's shifted that way. Yes. So just watch your numbers. That's all. Yeah, no. Perfect. Very good. If you were doing it in the exam, make sure you did why and why one or whatever you're doing or I want Yeah, perfect. Very good. Illustrate the clshape of the classical long run aggregate supply curb on the diagram below. Oh, easy. 10s. No. Yeah, no wonder that is one mark. Apart from the back, man, you were terrible at drawing this straight lines. It's very hard to draw straight lines on there. Oh, very good. Classical, classical. Aggregate supply? Yeah, no one aggate supply very good. Explain the reason for the shape of the long run aggregate supply. Can you remember it? If you want me to tell you again, I'm happy to say it again. If you want. Can you remember shape of classical long rocurve? Maybe I should describe the shape of the classical las curve, that is, a straight line which vertical to the real output, because the classical run has assume that capacity is production capacity is full, yes, yes, or one of the factor of production is fixed. Yes. Okay, good. Okay. The International Monetary Fund has called called on the G20 group of large industrialized countries to boost government spending on infrastructure. I tell you what's interesting here. I'm sort of I'm going off topic here now. It's not just about this question, but what's very interesting is these are all exam questions from different years. And notice there's been three exam questions in different years about aggregate supply related to government spending. It's had the bridge, it's had the rail line, and now it's got this one. So there's been three questions over these exam papers that have all basically been the same. And that is really important to note because what you start to see is you really see the patterns coming up and thinking, they ask these type of questions, these type questions, and you become good at those type of questions. Yeah so this is really useful. These sort of all the same topic exam questions because you see what comes up really good. Okay, sorry. So the international management tary fund has called on the G20 group of large industriour country to boost government spending on infrastructure, draw an aggregate demand and aggate supply diagram, show likely the impact of increasing government spending on a country's price level and real output. Very you go. Plus level every demand, every is supplied. Likely ly impact on an increase in government spending on infrastructure structure, roads, rail, that sort of thing. Infrastructure, Yeah, bridges. That's what I'm saying. The three questions are basically the same. I agree. But it's good revision that if they want to put them in every year, if they want to put that in the year, you do the exam and you've done lots of them perfect. It's lying. Okay. Okay, good. You become an expert. Now you're like, this is easy. Oh, hello, even better. Look, another one marker that you'll find very easy, my mark. Okay my mark. Okay, very good, amazing. Explain what is meant by spare capacity in the economy. If there's any spare capacity. I don't know. Well, when we're we're saying we're saying the other one doesn't have any spare capacity. So we're saying the long and accquate spy has no spare capacity. What spare capacity? Capacity, I mean extra production capacity. Nearly there's some extra resources that are not being used. So spare capacity. I like that. So the room is to increase out of supply. So you can so there is room to increase. Is is that that's a bit of a sorry, that's a bit of a funny way to say it because I've used the word room. Do you understand what I mean? Hang on. How about that? Does that make more sense? If spare capacity means there's an underutilization of factors of production, some are not being used. So economy is able to increase output or supply if it wanted to. It's not at full capacity. It's the opposite full capacity. Is that okay? Does that make sense? Let me start a long word, okay? Okay, Yep Yep. Which is the following slilight causing movement along the aggregate supply curve. Along the a curve. The first one. Hang even along the aglike that. No, that would shift it. That would shift it. That would not put a long of. Productivity. That would shift it because you're more productive cost strofour materials. That would shift it as well. Hang on, my wrong. The level of aggregate demand Yeah because the level of aggregate demand would moved it youwould shift it. Yeah it's this one movement. So instead of on that's just 11 we drew that point Yeah from like here changing price to here. Okay. So obviously a shift in the demand would move along the supply. Everything else on that list would shift it. So you could rule those out because they would all shift it. I had to think about that. That would all, they would all move it, the top ones, whereas this one would just be a movement along it. To a different point. Okay. Yeah background ground below shows the aggregate demand possible. The dinoination, the aggregate demand and possible long run aggregate supply for the uk. Okay, so I'm going to take the diagram above to show the likely impact of government policy to promote business competition and the equilibrium level of output and price. Okay? So there's going to be a shift in aggregate supply because the government has changed the policies. So therefore, we can shift our wards by. So how are we going to draw this? Impact of government policy to promote business competition to the equilibrium level of real output level okay. Government promote business competition, so I don't think any can move, so just move long run as hallmark how? Yep, yejust shifshift long run aggregate supply. All right. And then just make sure you annotate the diagram. Okay. Good, good you're getting so good at these. They're becoming boring to you. That's that's good, isn't it? You're so like, ding, ding, ding now aren't you? With these, you're like, Yeah, this is easy. Which one of the following would be most likely to cause aggregate demand to increase? Oh God. Need to this one. No savings. No, we don't spend. If if we're saving, we don't spend a falling miss. A falling. Oh, a falling. Yes, you're right then you're right. I'm sorry. You're right. I read it. Royou're, exactly right. Well done. Due to withdraw an aggregate demand and aggregate supply, illustrating the likely impact of the rise in interest rates on the price level and real output. So interest rates decreases aggregate demand and decreases aggregate supply. Yep. So there you go. Agsupply will decrease because businesses won't invest in new technology. They might not expand. They might not hire as many people. You've got to remember a lot of businesses are run on borrowing like they borrow for machines and they borrow for. You know office spaces and things, they might downsize if the interest rates go up, the things are more expensive, but aggregate demand definitely decreases. So whichever one you want to draw, you can draw both or either draw draw the demand one that was the one you are instantly comfortable with. So draw that both are right. I'm not understand why the will decrease. Yes, aggregate supply because Yeah. Other. Stias the cost of money becomes more expensive as interest rates increase. Yeah expensive business worless spend less of development, do not upgrade machines. Also the borrowing they borrowing they have already is more expensive so they have to make make. Yep. Such as not employing as many stuff. Did that help? Yeah vision to productivity decreasing so decreases. Yeah does that make sense? Both are right. By the way. Aggregate demand is the obvious one, but aggregate supply also is impacted. So if you want to quickly be in the last few seconds, we've got draw a diagram for about the tenth time today. You're now an expert at these diagrams. Just be careful with doing a decrease so your numbers are the other way round. Oh, Yeah, no, you're right. Yeah, you're right. You're right. You've done it. Sorry. I thought you're doing too yet with that to that. And then you just want those. Output decreased. Very nice, happy. Yeah, okay, well done. You've done well. Okay, I will see you. Oh, I'll see you, I think after Christmas now. So I'll see you after Christmas. Have a nice Christmas. Hope you get something nice. Nice. All right, bye bye bye.